Simon Lester (Author at Cato Institute)Individual Liberty, Free Markets, and Peacehttps://www.cato.org/
enamast@cato.org (Andrew Mast)webmaster@cato.org (Cato Webmaster)Mon, 10 Dec 2018 21:14:09 -0500Mon, 17 Dec 2018 14:23:45 -0500Is The Trump Administration Willing To Make A Deal With China?https://www.cato.org/blog/can-us-china-make-deal
<p>The escalating tariffs imposed by the United States and China in recent months are making people and markets nervous, and just about everyone would like to see a deal of some sort. Over this period, prospects for a deal have gone up and down with the latest Trump tweet, but <a href="https://www.scmp.com/news/china/diplomacy/article/2178377/us-china-can-reach-deal-trade-90-days-ex-chinese-central-bank">some</a> <a href="https://economictimes.indiatimes.com/news/international/world-news/trade-war-signs-of-progress-in-us-china-talks/articleshow/67111687.cms">reports</a> suggest that the prospects now look promising. The current negotiating timetable is based on a 90-day period that Presidents Trump and Xi agreed to at their dinner in Buenos Aires on December 1 during the G20 talks. But what exactly would a deal look like? The Trump administration talks a lot about what it wants China to do, and the media mostly focuses on that. But what, if anything, will the administration give as part of this deal? Mike Santoli of CNBC Closing Bell <a href="https://www.cnbc.com/2018/12/07/cnbc-transcript-white-house-trade-advisor-peter-navarro-speaks-with-cnbcs-closing-bell-today.html">asked</a> White House trade adviser Peter Navarro this question recently:</p>
<blockquote><p>MIKE SANTOLI: Peter, you started out by saying how President Xi in 45 minutes gave a presentation showing a willingness to address all the United States’ concerns and then you say but everything else they have done essentially means that you’re very skeptical, I assume, of the likelihood of them delivering that. In exchange for what was the President suggesting that they would perhaps promise these reforms? In exchange for what from the United States?</p>
<p>PETER NAVARRO: …In terms of what we give back, I mean therein lies the rub. President Trump has been eloquent in stating that we are the piggy bank of the world. We’re in all these sorts of one sided bad trade deals and the problem that we have whenever we negotiate with whoever we negotiate is they are getting such a great deal they really don’t want to give us anything. So we are not prepared to give them anything in terms of a deal quid pro quo because we are so much behind the eight ball. We are not stealing their technology. We are not forcing the technology transfer. We are not manipulating our currency. We are not counterfeiting and pirating Chinese goods and flooding their markets. We are not having state owned enterprises run rampant around the world, basically exploiting the rest of the world. So what is there for us to give? What we have to give is access to our markets, period. The largest market in the world. Access to our financial markets, our capital markets. This is a great gift that we give to other nations. But we’re not going to do it anymore – President Trump’s made it clear – we’re not just going to give that away and be exploited.</p></blockquote>
<p>In short, Navarro says that the administration will not be giving anything. Of course, even if he knew otherwise, he probably feels like he has to say this as part of the administration’s negotiating strategy. But regardless of what he or the administration says about this, the reality is likely to be different. Generally speaking, trade deals involve concessions by both sides. And with China in particular, given its <a href="https://en.wikipedia.org/wiki/Century_of_humiliation">“century long humiliation”</a> of being pushed around by foreign powers, one-sided deals are going to be very difficult politically. And that seems to be how China is thinking about these negotiations, as a spokesperson for China’s Ministry of Commerce <a href="http://www.mofcom.gov.cn/xwfbh/20181206.shtml">recently suggested</a>: “In the next 90 days, China and the U.S. will negotiate on major issues of bilateral concern based on the principle of ‘mutual respect, equality, mutual benefit, and being mindful of each other’s concerns,’ aiming at the ultimate goal of removing all additional tariffs, and striving to reach consensus.”</p>
<!--break--><p>
So what might China want or expect to get out of a deal? In a <a href="https://www.cato.org/publications/free-trade-bulletin/its-time-negotiate-new-economic-relationship-china">Free Trade Bulletin we wrote</a> last year, we suggested some possibilities:</p>
<blockquote><p>… if this is to be a negotiation, China will have demands, too. One of these is likely to be that the United States begins treating China as a market economy in its antidumping calculations. This will be difficult for the United States to accept. However, if the United States can get enough concessions in other areas (such as SOEs and overcapacity in steel production) and can impose some additional disciplines on China’s own abuses of antidumping measures, perhaps it could go along with this demand.</p>
<p>Similarly, there has been talk of revising the review of foreign investment carried out by the Committee on Foreign Investment in the United States (CFIUS) so as to broaden its scope. Chinese companies have previously challenged CFIUS decisions blocking their investment, and expanding the scope of this review is likely to be of concern. As part of a negotiation on trade and investment, the United States could commit to maintaining the existing focus for reviewing Chinese investments and keeping the review process from being abused.</p></blockquote>
<p>Since we wrote that piece, the enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) has provided a legal framework to expand, rather than limit, the scope of CFIUS review. However, some of the details are still to be determined, and the U.S. could apply the law in a narrow way so that the process will not impede investment unreasonably. Relatedly, the U.S. could relax some of its restrictions on selling high-tech products to Chinese companies, in areas where national security is not at issue. These are just a couple ideas, and there are many other possibilities.</p>
<p>We are more skeptical of a significant deal than some commentators seem to be, but we do think there is a chance, although it will almost certainly take longer than 90 days. But the Trump administration needs to offer something in exchange for any concessions by China. If the administration is not anticipating giving something to make a U.S.-China deal look balanced, the prospects for a deal do not look very good at all. </p>
https://www.cato.org/blog/can-us-china-make-dealMon, 17 Dec 2018 14:23 ESTSimon Lester (Author at Cato Institute)Simon Lester, Huan ZhuHow House Democrats Can Fix the North American Trade Dealhttps://www.cato.org/publications/commentary/how-house-democrats-can-fix-north-american-trade-deal
<p>Donald Trump has thrown down a trade gauntlet to the Democrats
who will take control of the House of Representatives in January.
The day after the Nov. 30 signing of a new deal with Mexico and
Canada, the U.S. president announced that he planned <a href=
"https://www.reuters.com/article/us-usa-trump-nafta/trump-to-notify-congress-in-near-future-he-will-terminate-nafta-idUSKCN1O103K"
target="_blank">to formally terminate</a> the existing North
American Free Trade Agreement (NAFTA) “shortly.”
Assuming he has the power to terminate (which is <a href=
"https://thehill.com/blogs/pundits-blog/international-affairs/346744-trump-cant-withdraw-from-nafta-without-a-yes-from"
target="_blank">debatable</a>), that would give the U.S. Congress
six months from the date of termination to approve the new deal
known as the United States-Mexico-Canada Agreement — or
return to the pre-NAFTA rules in effect before 1994.</p>
<p>With their midterm election takeover of the House of
Representatives, the Democrats will have a much bigger voice on
trade policy. They seem certain to use that voice to push for
substantive changes, such as stronger labor protections, in order
to move the USMCA in what they see as a more “progressive”
direction. Conservatives would obviously prefer an agreement that
is less progressive. But people on both sides of the aisle have a
common interest: making the agreement <a href=
"https://thehill.com/opinion/finance/409498-the-fundamental-flaw-in-the-new-nafta-deal"
target="_blank">enforceable</a> and making it function
properly.</p>
<blockquote class="pullquote right">
<p class="pq-quote"><span class="pq-body">Beyond any progressive
tweaks, the House Democrats should demand that the administration
make changes to the broader procedural and structural provisions of
the USMCA to ensure that it can be enforced and updated when
needed.</span></p>
</blockquote>
<p>As it stands now, the USMCA text has flaws in both areas. Beyond
any progressive tweaks, the House Democrats should demand that the
administration make changes to the broader procedural and
structural provisions of the USMCA to ensure that it can be
enforced and updated when needed.</p>
<p>NAFTA was a success for the most part, but one major problem
arose with the settlement of disputes between the parties. In
2000-2001, the United States blocked a dispute panel — a
third-party adjudicator that interprets and applies NAFTA
obligations to determine if a government is in violation —
from being appointed to hear a Mexican complaint about U.S. sugar
restrictions. After this episode, no new panels were set up.
Unfortunately, the flaws that allowed the United States to block
that panel were largely carried over from the NAFTA to the USMCA.
If enforcing the agreement is important to the Democrats, they need
to address this flaw.</p>
<p>The main problem was that, as part of the panel appointment
process, all three countries needed to agree on a list of potential
panelists to choose from. However, because the roster of panelists
expired every three years, it would often remain empty or
underfilled, as the three countries could not always agree on who
should serve. The USMCA needs to fix this process, so that one
country cannot prevent the creation or use of the roster by
objecting to the candidates proposed by others. If any party
proposes candidates for the roster, it should be deemed filled,
even if other parties are not participating in the process of
nominating candidates in good faith.</p>
<p>There should also be clear rules for how to select panelists
when the parties cannot agree. Recent trade agreements <a href=
"https://urldefense.proofpoint.com/v2/url?u=https-3A__www.cambridge.org_core_journals_world-2Dtrade-2Dreview_article_access-2Dto-2Dtrade-2Djustice-2Dfixing-2Dnaftas-2Dflawed-2Dstatetostate-2Ddispute-2Dsettlement-2Dprocess_833E151474CD2198068A6EB094759545&d=DwMF-g&c=4ZIZThykDLcoWk-GVjSLmy8-1Cr1I4FWIvbLFebwKgY&r=6el9HecxR39FUMvj9XleSepCvRZSKxioMhK3xA3lbMk&m=YLYXhtirwfYHs8d0HsvJkg2DDoU6CrnvF24-mU94dCM&s=QZrhWdnkcH7p797JTubvRbndITbImqSVay0BymBExgg&e="
target="_blank">set out a detailed process</a> in this regard, and
it is worth considering these provisions as part of the USMCA. A
side letter that clarifies the ambiguity regarding the roster and
panelist appointments may be sufficient here.</p>
<p>The second issue where the Democrats should try to improve the
USMCA is the “sunset clause.” This provision - <a href=
"https://www.reuters.com/article/us-trade-nafta-trump/trump-says-u-s-mexico-trade-deal-could-be-imminent-idUSKCN1LA0H0?feedType=RSS&feedName=businessNews"
target="_blank">a softer version</a> of the original U.S. demand
for an automatic termination of the agreement after five years
unless signatories opted back in — is ostensibly designed to
force a review of the agreement after six years. As part of this
review, the agreement ends in 16 years unless the three countries
agree to extend the term. Both aspects of this provision are
<a href=
"https://urldefense.proofpoint.com/v2/url?u=https-3A__thehill.com_opinion_finance_415290-2Dnew-2Dnaftas-2Dsunset-2Dclause-2Dis-2Da-2Dticking-2Dtime-2Dbomb&d=DwMF-g&c=4ZIZThykDLcoWk-GVjSLmy8-1Cr1I4FWIvbLFebwKgY&r=6el9HecxR39FUMvj9XleSepCvRZSKxioMhK3xA3lbMk&m=YLYXhtirwfYHs8d0HsvJkg2DDoU6CrnvF24-mU94dCM&s=YUsunyvzA9k6hSA5Dm2Yt7oaIPFs72d8d1sKIitfDxs&e="
target="_blank">highly problematic</a>. It will not lead to an
effective review, and the uncertainty over the continuation of the
agreement undermines the goal of encouraging trade and
investment.</p>
<p>Instead of a high-stakes review after six years, the Democrats
should push for the institutions created by NAFTA (and carried over
into the USMCA) to function properly. NAFTA established a Free
Trade Commission to oversee the agreement, and various committees
to deal with specific substantive issues. But having these bodies
exist on paper is not enough. Additional language in the agreement
to require that the bodies actually meet regularly would help
ensure that the review process works.</p>
<p>Furthermore, as drafted now, the provision looks like a power
grab by the executive branch. Trump’s frequent threats about
withdrawing from NAFTA and other trade agreements have led scholars
to look into whether he has the authority to do so on his own, or
whether Congress must have a say in such decisions. Congress has
power over trade under the Constitution, but it has delegated much
of this control over the years. The sunset provision would have
Congress cede more power to the president, by giving him the
authority to decline to extend the USMCA. In this way, a president
would be able to terminate the agreement without any Congressional
role.</p>
<p>The simplest approach the Democrats could take to the sunset
clause is to demand that it be deleted. The administration will
need Democratic votes to pass the USMCA in the House, so it will
have to listen to their views. Canada and Mexico — whose
legislatures also still have to approve the new pact — did
not want the sunset clause, so negotiations do not have to be
reopened on other issues to maintain a balance. The administration
can simply inform Canada and Mexico that it no longer wants the
provision it previously demanded.</p>
<p>NAFTA has always been controversial on the left, and
progressives have long called for changes to the agreement. USMCA
incorporates some of these changes, but Democrats must find a way
to make them stick. Unfortunately, if the USMCA is plagued with the
same technical problems seen in NAFTA enforcement, and riddled with
new ones through the sunset clause, the USMCA will not give the
Democrats what they have been asking for. The Democrats have a lot
to consider in the coming months as they decide on how they want to
approach trade policy. Fixing the flaws in the USMCA should be a
top priority.</p>
https://www.cato.org/publications/commentary/how-house-democrats-can-fix-north-american-trade-dealWed, 05 Dec 2018 09:03 ESTSimon Lester (Author at Cato Institute)Simon Lester, Inu ManakSimon Lester discusses the USMCA on Sirius XM's The Big Picture with Olivier Knoxhttps://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-usmca-sirius-xms-big-picture-olivier-knox
https://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-usmca-sirius-xms-big-picture-olivier-knoxMon, 03 Dec 2018 11:41 ESTSimon Lester (Author at Cato Institute)Simon LesterSimon Lester discusses the USMCA on KURV's The Wall with Sergio Sanchezhttps://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-usmca-kurvs-wall-sergio-sanchez
https://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-usmca-kurvs-wall-sergio-sanchezFri, 30 Nov 2018 11:45 ESTSimon Lester (Author at Cato Institute)Simon LesterWill Progressives Vote for Trade Liberalization?https://www.cato.org/blog/will-progressives-vote-trade-liberalization
<p>At the G20 meeting in Buenos Aires today, the renegotiated NAFTA – in the U.S., the new agreement is referred to as the United States - Mexico - Canada Agreement, or USMCA – <a href="https://www.wsj.com/articles/u-s-mexico-and-canada-sign-pact-to-replace-nafta-1543581929">was signed by the three parties</a>. The big question now is, what will Congress think of the agreement as it decides whether to ratify it? One aspect of this question is, what will the Democrats who now control the House think of it? And to get even more specific, I’m very curious to see what progressives think of it. While she is in the Senate rather than the House, Senator Elizabeth Warren may be a good indicator of what many progressives think. Yesterday, Senator Warren <a href="https://www.warren.senate.gov/newsroom/press-releases/warren-outlines-vision-for-a-foreign-policy-that-works-for-all-americans">gave a speech</a> at American University in which she set out “her vision for a progressive foreign policy that works for all Americans.” She covered a lot of ground, and I won’t go through all of it, but here is a key bit on trade policy:</p>
<blockquote><p>By the time the 2008 global financial crash came around, it only confirmed what millions of Americans already knew: the system didn’t work for working people - and it wasn’t really intended to.</p>
<p>And it’s still not working. Tomorrow, the Trump Administration will likely sign a renegotiated NAFTA deal. </p>
<p>There’s no question we need to renegotiate NAFTA. The federal government has certified that NAFTA has already cost us nearly a million good American jobs - and big companies continue to use NAFTA to outsource jobs to Mexico to this day.</p>
<p>But as it’s currently written, Trump’s deal won’t stop the serious and ongoing harm NAFTA causes for American workers. It won’t stop outsourcing, it won’t raise wages, and it won’t create jobs. It’s NAFTA 2.0.</p>
<p>For example, NAFTA 2.0 has better labor standards on paper but it doesn’t give American workers enough tools to enforce those standards. Without swift and certain enforcement of these new labor standards, big corporations will continue outsourcing jobs to Mexico to so they can pay workers less.</p>
<p>NAFTA 2.0 is also stuffed with handouts that will let big drug companies lock in the high prices they charge for many drugs. The new rules will make it harder to bring down drug prices for seniors and anyone else who needs access to life-saving medicine.</p>
<p>And NAFTA 2.0 does little to reduce pollution or combat the dangers of climate change - giving American companies one more reason to close their factories here and move to Mexico where the environmental standards are lower. That’s bad for the earth and bad for American workers.</p>
<p>For these reasons, I oppose NAFTA 2.0, and will vote against it in the Senate unless President Trump reopens the agreement and produces a better deal for America’s working families.</p>
<p>…</p>
<p>How can we make the system fair for working Americans? Lots of ways.</p>
<ul>
<li>We can start by ensuring that workers are meaningfully represented at the negotiating table and build trade agreements that strengthen labor standards worldwide.</li>
<li>We can make every trade promise equally enforceable, both those terms that help corporations and those that help workers.</li>
<li>We can curtail the power of multinational monopolies through serious antitrust enforcement.</li>
<li>We can work with our international partners to crack down on tax havens. </li>
</ul>
<p>Those four changes would fundamentally alter every trade negotiation. </p></blockquote>
<p>I disagree with most of her views on the impact of NAFTA, but putting that aside, what I’m curious about here is what it would take to get her to support the new NAFTA. I’ve read through her remarks a couple times now, and I still can’t figure out precisely what changes she wants and expects in NAFTA 2.0 in order to vote for it. First of all, the tax haven and monopoly issues are not likely to be addressed seriously through a trade agreement anytime soon, so we can ignore that part. On the other hand, the labor protections and worker issues are <em>already in</em> the new NAFTA, and the Trump administration pushed for changes in this area that gave labor groups far more than President Obama’s Trans Pacific Partnership did. So what is Senator Warren’s goal with these statements? Is she laying the groundwork for a “no” vote on the agreement, regardless of any additions to the agreement the Trump administration might accept? Or are there changes on labor rights that would satisfy her and get her to vote in favor?</p>
<p>My instinct is that she will not vote for any trade agreement negotiated by Trump, but we’ll see. Perhaps there is more potential with the younger progressives in Congress who are not as wedded to the economic nationalist views of senior Democrats. Has anyone asked Alexandria Ocasio-Cortez what she thinks of trade liberalization and whether there is a trade agreement she could support? I’m curious whether she and other young progressives who are open to immigration could also be open to trade. I’ve seen her <a href="https://twitter.com/Ocasio2018/status/1000461154504855552">sound skeptical about trade deals</a> on Twitter, but now she will be governing rather than campaigning, and that could make her think more deeply about whether blocking trade with people in other contries is really a good policy.</p>
https://www.cato.org/blog/will-progressives-vote-trade-liberalizationFri, 30 Nov 2018 08:53 ESTSimon Lester (Author at Cato Institute)Simon LesterDaniel J. Ikenson and Simon Lester’s White Paper, “The Ideal U.S.-U.K. Free Trade Agreement: A Free Trader’s Perspective,” is mentioned on BBC Radio’s The Compasshttps://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-simon-lesters-white-paper-ideal-us-uk-free-trade
https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-simon-lesters-white-paper-ideal-us-uk-free-tradeWed, 28 Nov 2018 11:15 ESTSimon Lester (Author at Cato Institute)Daniel J. Ikenson, Simon LesterSimon Lester discusses the latest on Trump's tariffs escalation towards China on KDMT's Business for Breakfast with Jimmy Sengenbergerhttps://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-latest-trumps-tariffs-escalation-towards
https://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-latest-trumps-tariffs-escalation-towardsTue, 27 Nov 2018 12:46 ESTSimon Lester (Author at Cato Institute)Simon LesterSimon Lester discusses what Brexit means for the rest of the world on Deutsche Welle TVhttps://www.cato.org/multimedia/media-highlights-tv/simon-lester-discusses-what-brexit-means-rest-world-deutsche-welle-tv
https://www.cato.org/multimedia/media-highlights-tv/simon-lester-discusses-what-brexit-means-rest-world-deutsche-welle-tvMon, 26 Nov 2018 12:17 ESTSimon Lester (Author at Cato Institute)Simon LesterIt's No Use Crying Over Spelt Milkhttps://www.cato.org/blog/its-no-use-crying-over-spelt-milk
<p>We weren’t kidding in the title to this post. There really is something called <a href="https://www.classica.net.au/products/spelt-milk-1-lt">spelt milk</a>. There is also soy milk, rice milk, coconut milk, almond milk, hemp milk, quinoa milk, oat milk (that’s not a typo – oat milk, not goat milk, although there is also goat milk of course), and pea milk (yes, really, pea milk). But now the cow milk producers are crying to the government (multiple branches, in many countries) that these non-dairy milks should not be allowed to use the term “milk.” They claim this is about consumer confusion, but are any consumers confused about where soy milk comes from? Although recent polling suggests that a few people think <a href="https://www.washingtonpost.com/news/volokh-conspiracy/wp/2017/06/16/public-ignorance-brown-cows-and-the-origins-of-chocolate-milk/">chocolate milk comes from brown cows</a> (we suspect they were just having fun with the pollsters), it’s hard to believe that people purchasing these alternative milks couldn’t figure out their source. The term “milk” has been used to describe plant-based beverages for centuries, and we shouldn’t let the dairy lobby change that.</p>
<p>In the United States, there are efforts underway to push both the legislative and executive branches to protect dairy producers from their non-dairy competitors by keeping the word “milk” off the competitors’ products. With <a href="https://www.baldwin.senate.gov/press-releases/dairy-pride-act">support from the industry</a>, Senator Tammy Baldwin has introduced <a href="https://www.baldwin.senate.gov/imo/media/doc/S.%20130%20DAIRY%20PRIDE%20Act.pdf">legislation</a> that, as she puts it, “would require non-dairy products made from nuts, seeds, plants, and algae to no longer be mislabeled with dairy terms such as milk, yogurt or cheese.” But this legislative action may not even be necessary, because here’s what may be happening soon <a href="https://www.politico.com/story/2018/07/17/almond-lactate-nondairy-milk-scott-gottlieb-725974">at the Food and Drug Administration (FDA)</a>:</p>
<blockquote><p>The head of the FDA said … that the Trump administration will move to crack down on the use of the term “milk” for nondairy products like soy and almond beverages.</p>
<p>The agency will soon issue a guidance document outlining changes to its so-called standards of identity policies for marketing milk, FDA Commissioner Scott Gottlieb said at the <a href="https://www.politico.com/live-stream/politico-pro-summit-2018" target="_blank">POLITICO Pro Summit</a>.</p>
<div>
<div id="pol-05" data-google-query-id="CMugksO1nd4CFUspaQodXV8A3g">
<div id="google_ads_iframe_/6326/politico/policy-agriculture_3__container__">“An almond doesn’t lactate, I will confess,” Gottlieb said, referring to the fact that the agency’s current standards for milk reference products from lactating animals.</div>
<div> </div>
<div>The move would be a major boon for dairy groups, which have been struggling amid dropping prices and global oversupply. The industry has petitioned FDA to enforce marketing standards for milk, but the agency has not previously addressed the issue.</div>
</div>
</div>
</blockquote>
<p>We are not scientists, but his statement about almonds not lactating sounds right to us. But regardless of whether almonds or other plants lactate, there is a long history of using the term “milk” for plant-based products that do not lactate. Smithsonian Magazine recently <a href="https://www.smithsonianmag.com/history/nut-milks-are-milk-says-almost-every-culture-across-globe-180970008/">put it this way</a>: “Linguistically speaking, using ‘milk’ to refer to the ‘the white juice of certain plants’ (the second definition of milk in the Oxford American Dictionary) has a history that dates back centuries.” We didn’t check all the dictionaries, but here are a couple that illustrate the point. The online edition of Webster’s Dictionary, 1828 defines <a href="http://webstersdictionary1828.com/Dictionary/milk">milk</a> as: </p>
<blockquote><p><strong>1.</strong> A white fluid or liquor, secreted by certain glands in female animals, and drawn from the breasts for the nourishment of their young.</p>
<p><strong>2.</strong> The white juice of certain plants.</p>
<p><strong>3.</strong> Emulsion made by bruising seeds.</p></blockquote>
<p>Along the same lines, the Oxford English Dictionary defines <a href="https://en.oxforddictionaries.com/definition/milk">milk</a> as:<strong> </strong>
<blockquote><p><strong>1. </strong>An opaque white fluid rich in fat and protein, secreted by female mammals for the nourishment of their young.</p>
<p><em>‘a healthy mother will produce enough milk for her baby’</em>
<p><strong>1.1</strong> The milk from cows (or goats or sheep) as consumed by humans.</p>
<p><em>‘a glass of milk’</em></p>
<p><strong>1.2</strong> The white juice of certain plants.</p>
<p><em>‘coconut milk’</em></p>
<p><strong>1.3</strong> A creamy-textured liquid with a particular ingredient or use.</p>
<p><em>‘cleansing milk’</em></p></blockquote>
<p>And the American Heritage Dictionary of the English Language defines <a href="https://ahdictionary.com/word/search.html?q=milk&submit.x=0&submit.y=0">milk</a> as:</p>
<blockquote><p><strong>1. </strong>A whitish liquid containing proteins, fats, lactose, and various vitamins and minerals that is produced by the mammary glands of all mature female mammals after they have given birth and serves as nourishment for their young.</p>
<p><strong>2. </strong>The milk of cows, goats, or other animals, used as food by humans.</p>
<p><strong>3. </strong>Any of various potable liquids resembling milk, such as coconut milk or soymilk.</p>
<p><strong>4. </strong>A liquid resembling milk in consistency, such as milkweed sap or milk of magnesia.</p></blockquote>
<p>All of these definitions include non-dairy liquid substances as examples of what can be considered milk. Thus, identifying these products as “milk” is nothing new. In fact, in examining the etymology of the word milk, it appears that “milk-like plant juices” date back to the <a href="https://www.etymonline.com/word/milk">13<sup>th</sup> century</a>, with some even showing up in <a href="https://www.smithsonianmag.com/history/nut-milks-are-milk-says-almost-every-culture-across-globe-180970008/">medieval cookbooks</a>.</p>
<p>The issue has also arisen outside the United States. The <a href="http://www.fao.org/fao-who-codexalimentarius/about-codex/faq/jp/">Codex Alimentarius Commission</a>, an international body that develops food standards, defines <a href="http://www.fao.org/fao-who-codexalimentarius/sh-proxy/en/?lnk=1&url=https%253A%252F%252Fworkspace.fao.org%252Fsites%252Fcodex%252FStandards%252FCODEX%2BSTAN%2B206-1999%252FCXS_206e.pdf">milk</a> as “the normal mammary secretion of milking animals obtained from one or more milkings without either addition to it or extraction from it, intended for consumption as liquid milk or for further processing.” However, the Codex standard for the use of dairy terms also stipulates that the restrictive use of the term “milk” for labelling of milk, milk products or composite milk products “shall not apply to the name of a product the exact nature of which is clear from traditional usage or when the name is clearly used to describe a characteristic quality of the non- milk product.” So there appears to be some flexibility in how countries apply this standard, and Codex even <a href="http://www.fao.org/fao-who-codexalimentarius/sh-proxy/jp/?lnk=1&url=https%253A%252F%252Fworkspace.fao.org%252Fsites%252Fcodex%252FStandards%252FCODEX%2BSTAN%2B322R-2015%252FCXS_322Re.pdf">notes</a> that “Plain soybean beverage is the milky liquid prepared from soybeans” and that some countries refer to soybean beverages as “soybean milk.”</p>
<p>So what have other countries done in regulating non-dairy milk products? It may be helpful to first take a look at the European Union’s rules, as Europeans famously tend to have fairly strict food labelling standards. Milk is no exception. In fact, this very debate played out in a European Court of Justice case in 2017, <em><a href="http://curia.europa.eu/juris/celex.jsf?celex=62016CJ0422&lang1=en&type=TXT&ancre=">Verband Sozialer Wettbewerb eV v TofuTown.com GmbH</a></em>, where German company TofuTown argued that it clearly identified its products as plant-based, and thus should not be prohibited from calling its products “Soyatoo tofu butter” or “Veggie cheese” <a href="https://www.ft.com/content/60dfdf34-5117-11e7-bfb8-997009366969">for instance</a>. But EU rules prohibit the use of these terms for non-dairy products, so in this case TofuTown’s descriptions of its products were found to be in violation. </p>
<p>At the same time, the EU rules do allow Member States to make exceptions, noting that the restrictions on marketing a product as a “milk” product “shall not apply to the designation of products the exact nature of which is clear from traditional usage and/or when the designations are clearly used to describe a characteristic quality of the product” (this language mirrors that of Codex). Notably, products such as almond milk and coconut milk <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32010D0791&from=EN">are exempt</a>, among many other common designations, such as nut butters. </p>
<!--break--><p>
Closer to home, it appears that Canada is even stricter in its approach than the EU. The Canadian Food Inspection Agency <a href="http://www.inspection.gc.ca/food/labelling/food-labelling-for-industry/dairy-products/eng/1393082289862/1393082368941?chap=0#c3">states</a> that “Milk, unless otherwise designated, refers to cow’s milk” (though <a href="https://laws-lois.justice.gc.ca/eng/regulations/c.r.c.,_c._870/page-43.html#h-73">goat’s milk</a> is ok too) and provides strict guidelines for the marketing of milk products. However, some plant-based beverages can be considered “milk product alternatives” and the Canada Food Guide, which provides information to Canadians about diet and nutrition, suggests “fortified soy beverages” as <a href="https://www.canada.ca/en/health-canada/services/food-nutrition/canada-food-guide/choosing-foods/milk-alternatives.html">an alternative</a> to milk. They just can’t refer to it as “milk” on the label. (The mom of one of this post’s authors has verified that her carton of almond milk doesn’t have the word milk on it anywhere—there’s some small print that reads “fortified almond beverage.” Her mom still referred to it as milk, however, suggesting that government policy may not reflect common language usage.) </p>
<p>To illustrate how these products look on the shelves in the EU and Canada, we enlisted some skeptical friends and family members (who couldn’t see how this could possibly be related to our work) to take pictues:</p>
<p><img src="https://object.cato.org/sites/cato.org/files/wp-content/uploads/milk.jpg" width="996" height="722"></p>
<p><img src="https://object.cato.org/sites/cato.org/files/wp-content/uploads/milk2.jpg" width="996" height="723"></p>
<p>So what’s going on in the United States, and why is Sen. Baldwin pushing the DAIRY PRIDE Act (Defending Against Imitations and Replacements of Yogurt, Milk, and Cheese To Promote Regular Intake of Dairy Everyday)? Whatever happened to American exceptionalism, and are we on our way to adopting the metric system now? Hint—the word to focus on here is “promote.” It is no secret that the U.S. dairy industry has been <a href="https://www.npr.org/sections/thesalt/2017/05/16/528460207/why-are-americans-drinking-less-cows-milk-its-appeal-has-curdled">in decline</a> (Americans drink 18 gallons of milk a year, compared to 30 gallons back in the 1970s), while almond milk has witnessed the opposite trend, with sales growth of 250% in the last 5 years. Taking into all the various milks, non-dairy milk has seen <a href="https://www.vox.com/2018/8/31/17760738/almond-milk-dairy-soy-oat-labeling-fda">sales grow by 61%</a> over the last five years. </p>
<p>The dairy lobby recently flexed its muscles in pushing for concessions from Canada in the U.S.-Mexico-Canada Agreement (i.e., the new NAFTA), but that’s clearly not enough for them. They’re now ramping up efforts to challenge their direct competitors, the non-dairy milk industry. While it’s not clear that changing the labelling standard would alter consumer behavior in any way, that does not mean that government intervention in this area is harmless. It uses up governing resources, and creates consumer confusion where none currently exists. Perhaps there is some small risk that Thanksgiving will be ruined when someone brings a pumpkin pie that is made with coconut milk, but we don’t think this worry merits legislative or executive action.</p>
<p> </p>
<p> </p>
https://www.cato.org/blog/its-no-use-crying-over-spelt-milkMon, 19 Nov 2018 15:07 ESTSimon Lester (Author at Cato Institute)Simon Lester, Inu ManakDisciplining China's Trade Practices at the WTOhttps://www.cato.org/multimedia/cato-daily-podcast/disciplining-chinas-trade-practices-wto
<p>China’s trade practices are questionable, but are tariffs the proper response? Simon Lester is author of the new Cato paper, “<a href="https://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-help">Disciplining China’s Trade Practices at the WTO: How WTO Complaints Can Help Make China More Market-Oriented</a>.”</p>https://www.cato.org/multimedia/cato-daily-podcast/disciplining-chinas-trade-practices-wtoThu, 15 Nov 2018 09:26 ESTSimon Lester (Author at Cato Institute)Simon Lester, Caleb O. BrownDisciplining China's Trade Practices at the WTO: How WTO Complaints Can Help Make China More Market-Orientedhttps://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-help
<p>The Trump administration has argued that the World Trade
Organization (WTO) has failed to address China’s “unfair”
trade practices. While it is true that China’s economic rise poses
a unique challenge to the world trading system, WTO dispute
settlement has more potential to address China’s practices than the
administration believes. If the Trump administration really does
want the Chinese economy to be more market-oriented, it should make
better use of WTO rules by filing more complaints against China.
While it is often accused of flouting the rules, China does a
reasonably good job of complying with WTO complaints brought
against it.</p>
<p>There are a number of policy areas where additional complaints
are possible. The U.S. Trade Representative’s Office (USTR) has
been gathering detailed information on China’s practices for years
and should file complaints on this basis, coordinating these
efforts with key allies. And for those areas that are not well
covered by WTO rules, such as state-owned enterprises, the United
States should work with these allies to develop new rules. So far,
the Trump administration has mainly relied on unilateral tariffs to
open the Chinese market, but these are likely to hurt Americans,
while not having much effect on Chinese trade practices. The
multilateral route is a better approach to disciplining these trade
practices and making China more market-oriented.</p>
https://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-helpThu, 15 Nov 2018 (All day)Simon Lester (Author at Cato Institute)James Bacchus, Simon Lester, Huan ZhuSimon Lester discusses the USMCA trade deal in a Democrat-controlled House of Representatives on CBC's Power & Politicshttps://www.cato.org/multimedia/media-highlights-tv/simon-lester-discusses-usmca-trade-deal-democrat-controlled-house
https://www.cato.org/multimedia/media-highlights-tv/simon-lester-discusses-usmca-trade-deal-democrat-controlled-houseWed, 14 Nov 2018 12:10 ESTSimon Lester (Author at Cato Institute)Simon LesterNew NAFTA's Sunset Clause Is a Ticking Time Bombhttps://www.cato.org/publications/commentary/new-naftas-sunset-clause-ticking-time-bomb
<p>The United States, Mexico and Canada just finished renegotiating
the North American Free Trade Agreement (NAFTA), but the future of
the new NAFTA remains uncertain.</p>
<p>The United States was able to include a toned-down version of
one of its so-called “poison pills” in the new deal: a
“sunset clause” that will force new negotiations six years after
the agreement comes into effect and could lead to it ending after
16 years.</p>
<p>The new NAFTA’s sunset clause is one of the most convoluted and
unnecessary provisions ever seen in a trade agreement, and Congress
should scrutinize the provision carefully and consider alternatives
before approving the deal.</p>
<p>The sunset provision states that the agreement shall terminate
16 years after it enters into force unless certain conditions are
met. The conditions start with a “joint review” of the agreement
after six years. At this review, the governments can express their
desire to continue the agreement.</p>
<p>If they do so, the term gets extended for 16 years from the time
of the sixth year review. After another six years have elapsed from
the time of the first review, there will be another review and
possible extension, and the process will be repeated.</p>
<p>If all three parties do not confirm their desire to extend the
agreement at the six-year review, they meet again in the seventh
year, and they do so each year thereafter until the 16th year. If
they cannot agree by the 16th year, the agreement terminates.</p>
<p>While there is nothing wrong with updating agreements to keep up
with changes in the economy and to fix flaws that have been
discovered, this provision takes “review” of the agreement a step
too far. The possibility of automatic expiration after only 16
years adds an element of uncertainty to the whole enterprise.</p>
<p>If the United States was looking for a way to review the
agreement, there were much simpler approaches that already exist.
First of all, given that the new NAFTA is a renegotiation based on
a review of the old NAFTA, it is obvious that a review of the
agreement is already possible. No additional provision was
required. </p>
<p>Furthermore, there is also a permanent mechanism embedded in the
original NAFTA (and carried over into the new NAFTA) through which
the parties can carry out regular reviews: The Free Trade
Commission.</p>
<p>The commission is made up of ministerial level representatives
of the government, usually the United States Trade Representative,
Canada’s Minister of International Trade and Mexico’s
Secretary of the Economy. These ministers can and should conduct
regular meetings to review the functioning of the agreement.</p>
<p>In addition, the commission oversees various committees, which
address all of the wide ranging technical issues covered by
NAFTA.</p>
<p>Historically, the commission has done remarkably little. The
original NAFTA requires the commission to meet at least once a
year, but in reality, these meetings have been rare and have
accomplished little. In fact, the <a href=
"http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/fta-ale/celeb2.aspx?lang=eng"
target="_blank" rel="noopener noreferrer" data-saferedirecturl=
"https://www.google.com/url?hl=en&q=http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/fta-ale/celeb2.aspx?lang%3Deng&source=gmail&ust=1541537020741000&usg=AFQjCNHwBAmpjdpYBfhXDLZyAF5TdHYjwA">
most recent</a> joint statement by the commission that appears on
the Government of Canada’s website dates back to 2012.</p>
<p>The new NAFTA makes this worse <a href=
"https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/30%20Administrative%20and%20%20Institutional%20Provisions.pdf"
target="_blank" rel="noopener noreferrer" data-saferedirecturl=
"https://www.google.com/url?hl=en&q=https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/30%2520Administrative%2520and%2520%2520Institutional%2520Provisions.pdf&source=gmail&ust=1541537020741000&usg=AFQjCNH6g1Xf00QfZszJ1eIvGTHz_WMkJg">
by only requiring</a> the commission to meet <span data-term=
"goog_1042965617">within one year</span> of the agreement’s
entry into force, “and thereafter as the Parties may
decide.”</p>
<p>If the Trump administration wants a periodic review of NAFTA, it
should push for a reinvigorated commission and committees that meet
regularly, rather than a high-stakes game of chicken at six-year
intervals. Such a negotiating environment may produce short-term
“wins,” but it will undermine the countries’ relationship over the
long-term. </p>
<p>For these reasons, Congress should take a hard look at the
structure of the sunset clause and compare it to alternatives.
There is no need for it, and it will distract from the existing
review mechanisms that already exist but have been underutilized.
</p>
<p>Congress should also clarify its own role here. The sunset
provision references “the Parties” as being responsible for
deciding whether or not the agreement will continue and to make
recommendations to the commission for the joint review, but does
not make clear who within each country’s government has the
ultimate power to terminate the agreement.</p>
<p>Without a clearly defined role for Congress, the provision may
put the fate of NAFTA entirely in the hands of the executive
branch. But should President Trump and his successors have the
exclusive power to decide whether NAFTA serves U.S. interests, or
should Congress have a role here?</p>
<p>Recall that the Constitution gives power over trade to Congress,
but Congress has delegated a lot of power to the president on trade
over the years. It should be wary of giving away more. </p>
<p>There is no reason to place a ticking time bomb in the new
NAFTA. We already have the means to reopen trade agreements and fix
what doesn’t work. The sunset provision adds uncertainty and
undermines our relationship with our closest trading partners. The
new NAFTA is better off without it. </p>
https://www.cato.org/publications/commentary/new-naftas-sunset-clause-ticking-time-bombWed, 07 Nov 2018 11:14 ESTSimon Lester (Author at Cato Institute)Simon Lester, Inu ManakThe Trump Administration's Latest Trade Movehttps://www.cato.org/blog/trump-administration-trade-move
<p>The latest attack on international institutions by the Trump administration distinguishes itself by being quite obscure: It’s about postage. It also may have more of a basis than most of the administration’s complaints about trade. </p>
<p>The administration is concerned about the Universal Postal Union (UPU), a specialized agency of the UN. The UPU was established by the Berne Treaty of 1874 and became a <a href="https://www.unsceb.org/content/upu">UN agency in 1948</a>. The administration has taken issue with the “terminal dues” rates issued by the UPU, under which, the administration argues, the United States has been subsidizing the shipping costs of foreign suppliers in certain countries, including China, when they send goods to the United States. The basic story is as follows (some good background is <a href="https://s3.amazonaws.com/media.hudson.org/files/publications/20170302HermanCrisisInTheMailFixingaBrokenInternationalPackageSystem.pdf">here</a>).</p>
<p>When companies or individuals ship goods abroad, they use their domestic postal service to send the item. When that item arrives in the foreign country, the postal service of the shipping country makes a payment to the postal service of the destination country in the form of “terminal dues.” These “terminal dues” are set by the UPU and are designed to <a href="https://www.scmp.com/news/china/diplomacy/article/2169144/chinas-cheap-shipping-advantage-explained">cover the destination country’s portion of the transportation costs</a> – basically an agreed upon reimbursement rate to transport the item to the recipient.</p>
<p>The Trump administration’s concerns relate to the “terminal dues” rates set through the UPU for less wealthy countries, such as China. These countries’ rates are set very low, and do not necessarily cover the actual costs of shipping (and are sometimes significantly less than the rate American companies pay to ship within the United States). What this means in practice is that American taxpayers are sometimes subsidizing the transport costs of American companies’ foreign competition. It appears, then, that there is some legitimacy to the administration’s concerns about unfairness. </p>
<p>Of course, as is often the case with the Trump administration, its approach to the problem is confrontational and perhaps risks inflaming tensions. The administration has, yet again, decided to use a threat of withdrawal from a treaty as a negotiating tactic, taking steps to <a href="https://www.washingtonpost.com/business/economy/trump-ditches-144-year-old-postal-pact-that-boosts-chinese-retailers/2018/10/17/88aefea6-d234-11e8-8c22-fa2ef74bd6d6_story.html">withdraw from the UPU</a>. Perhaps the withdrawal threat will force quick action to change the fee structure at the UPU, although <a href="https://www.wsj.com/articles/global-postal-system-fast-tracks-rate-review-following-u-s-gripe-1540317224">there are some risks</a>. Pulling out of the treaty would give the United States the flexibility to set our own transport rates, but it would also mean that we lose the power to stop others from charging us higher rates in return, while doing away with a mechanism that was designed to reduce, and streamline, <a href="https://www.vox.com/2018/10/19/17996378/trump-china-universal-postal-union-treaty">transaction costs</a>. In essence, the administration’s approach could lead to a postal “trade war.”</p>
<p>Are there alternative approaches? A <a href="https://www.bloomberg.com/opinion/articles/2018-10-18/trump-is-right-on-china-s-postal-subsidy">Bloomberg editorial board piece</a> sets out what they think may be a workable solution: having the administration look for a compromise on a postal rate during the broader trade negotiations with China. Of course, there would have to be some negotiations going on for this to work.</p>
<p>If it weren’t for all of the other aggressive trade actions taken by the Trump administration, this issue might be more easily addressed. Because it is part of a larger package of contentious moves, it might get lost in the mix of all the real and perceived trade slights the administration is complaining about. In calmer times, this might be a simpler problem to fix.</p>
<p><em>Thanks to Logan Kolas for research assistance with this post.</em></p>
https://www.cato.org/blog/trump-administration-trade-moveWed, 31 Oct 2018 10:21 EDTSimon Lester (Author at Cato Institute)Simon LesterLeveling the Playing Field with Chinahttps://www.cato.org/publications/commentary/leveling-playing-field-china
<p>In recent months, the Trump administration has intensified its
trade war with China. Some have suggested there is an impending
“economic cold war” between the United States and
China, with an effort to “decouple” the world’s
two biggest economies. While this kind of talk can become a
self-fulfilling prophecy, such an outcome is not a foregone
conclusion at this point. With a change in approach, it is still
possible to find a peaceful solution.</p>
<p>The administration is right to criticize China for its
relatively closed markets. China’s wealth has grown
significantly in recent decades, yet some of its trade practices
remain rooted in its past as a fairly poor country. At this point,
it is fair to ask China to take on trade commitments commensurate
with its rising income level.</p>
<p>The problem lies with the administration’s strategy. It
has imposed tariffs on almost half of Chinese imports, which has
led China to impose retaliatory tariffs on nearly all U.S. imports.
There is no sign of either side backing down. If the
administration’s goal is to open up China’s market, its
strategy is not working, and it is time to consider
alternatives.</p>
<blockquote class="pullquote right">
<p class="pq-quote"><span class="pq-body">If the Trump
Administration really wants to convince China to move in a more
market-oriented direction, it needs to understand that unilateral
tariffs and bullying will not work.</span></p>
</blockquote>
<p>China is already doing some liberalizing on its own. For
instance, China is slowly opening up more sectors for foreign
investment and lowering its tariffs.<a href=
"https://www.riponsociety.org/article/leveling-the-playing-field-with-china/#_ftn1"
name="_ftnref1" id="_ftnref1">[1]</a> Chinese officials have
promised to continue with more of this type of liberalization.</p>
<p>But China needs to extend its efforts beyond these narrow issues
and make broader structural improvements to its economy. China
should reform its state-owned enterprises, rein in its subsidies,
pare back its various restrictive domestic regulations, and also
improve its intellectual property protection, including efforts to
address the cyber-espionage that has been well-documented in the
Office of the U.S. Trade Representative’s <a href=
"https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF"
target="_blank">Section 301 Report</a>.</p>
<p>The Trump Administration should encourage China’s efforts
in these areas, but unilateral tariffs will not help. They come
across as “bullying” to China, to which China reacts
badly.<a href=
"https://www.riponsociety.org/article/leveling-the-playing-field-with-china/#_ftn2"
name="_ftnref2" id="_ftnref2">[2]</a> Just as importantly, tariffs
will undermine economic well-being in both economies.</p>
<p>One good alternative for the Trump administration is to work
with other nations and file a wide range of WTO complaints against
China. China’s compliance record in WTO disputes is better
than many people realize, and there are a number of issues for
which complaints have a good chance of success. Intellectual
property protection and subsidies are two promising areas in this
regard.</p>
<p>For other issues, clearer and more explicit obligations are
needed — either within the existing WTO framework or though
bilateral/multilateral negotiations. The TPP was one avenue to
pursue this, but bilateral or multilateral efforts could also
work.</p>
<p>In contrast to those approaches, the Trump administration’s
latest idea is to look for ways to pressure certain allies into
taking collective action against China’s practices. The most recent
initiative of this kind is a provision in the new US-Mexico-Canada
Agreement (USMCA) that creates hurdles for Canada and Mexico if
they want to negotiate a trade deal with China. Article 32.10 of
this agreement requires a Party to inform other Parties of the
intention to negotiate a trade agreement with a non-market economy
and provide the full text of the agreement for review. If such an
agreement is negotiated, other Parties may terminate the USMCA and
negotiate a new bilateral agreement to replace it. The USMCA
provision does not mention China by name, but it clearly targets
China.</p>
<p>While some may worry that this provision completely eliminates
the possibility of an FTA with China, it could actually offer an
opportunity. The Trump Administration seems reluctant to engage in
a real negotiation with China, through which each side gives
something and gets something. But rather than give in to the U.S.
pressure here, Canada may be better served by demonstrating to the
Trump Administration how to negotiate with China in order to
address some of the trade practices in question. Australia and New
Zealand have already concluded trade deals with China. If Canada
could do so as well, some people in the U.S. government might take
notice. The conditions set out in Article 32.10 could make the
negotiating process a little bumpy, but they do not prohibit a
Canada-China deal.</p>
<p>If the Trump Administration really wants to convince China to
move in a more market-oriented direction, it needs to understand
that unilateral tariffs and bullying will not work. China may be a
difficult negotiator, but it has made concessions in trade
agreements before, and it would be willing to do so again. <a href=
"https://www.riponsociety.org/article/leveling-the-playing-field-with-china/#_ftn3"
name="_ftnref3" id="_ftnref3">[3]</a> Overall, China has more
respect for the international rule of law than people realize, at
least in the area of economic relations. It is also looking to play
a bigger role in the global economy. Instead of fanning the flames
of a trade war, let’s use this opportunity to move China in a more
market-oriented direction.</p>
<p><strong>Notes</strong>:</p>
<p><a href=
"https://www.riponsociety.org/article/leveling-the-playing-field-with-china/#_ftnref1"
name="_ftn1" id="_ftn1">[1]</a> <a href=
"http://gss.mof.gov.cn/zhengwuxinxi/gongzuodongtai/201809/t20180930_3033435.html"
target=
"_blank">http://gss.mof.gov.cn/zhengwuxinxi/gongzuodongtai/201809/t20180930_3033435.html</a></p>
<p><a href=
"https://www.riponsociety.org/article/leveling-the-playing-field-with-china/#_ftnref2"
name="_ftn2" id="_ftn2">[2]</a> <a href=
"https://www.bloomberg.com/news/articles/2018-10-09/china-commerce-minister-discusses-u-s-trade-dispute-full-text"
target=
"_blank">https://www.bloomberg.com/news/articles/2018-10-09/china-commerce-minister-discusses-u-s-trade-dispute-full-text</a></p>
<p><a href=
"https://www.riponsociety.org/article/leveling-the-playing-field-with-china/#_ftnref3"
name="_ftn3" id="_ftn3">[3]</a> <a href=
"https://www.ft.com/content/6f1bd226-cb67-11e8-b276-b9069bde0956"
target=
"_blank">https://www.ft.com/content/6f1bd226-cb67-11e8-b276-b9069bde0956</a></p>
https://www.cato.org/publications/commentary/leveling-playing-field-chinaTue, 30 Oct 2018 09:12 EDTSimon Lester (Author at Cato Institute)Simon Lester, Huan ZhuDoes Trump Have a Trade Strategy?https://www.cato.org/multimedia/cato-daily-podcast/does-trump-have-trade-strategy
<p>It’s hard to figure just what the White House believes are the long-term benefits of trade protectionism and stunted trade deals? Simon Lester comments.</p>https://www.cato.org/multimedia/cato-daily-podcast/does-trump-have-trade-strategyWed, 24 Oct 2018 16:15 EDTSimon Lester (Author at Cato Institute)Simon Lester, Caleb O. BrownIs The Trump Administration Finally Going To Pursue Some Trade Liberalization?https://www.cato.org/blog/trump-administration-finally-going-pursue-some-trade-liberalization
<p>The focus of the Trump administration’s trade policy to date has been on <a href="https://www.cato.org/blog/preliminary-assessment-amended-korus-fta">renegotiating</a> <a href="https://www.cato.org/blog/grading-new-nafta">existing</a> trade deals (with a mix of minor liberalization and modest new protectionism), putting tariffs on a wide range of imports using <a href="https://www.cato.org/publications/commentary/danger-invoking-national-security-rationalize-protectionism">flimsy justifications</a>, and engaging in a high-profile trade war with China. By contrast, it has put very little effort into pushing for significant new trade liberalization.</p>
<p>That may be about to change. The U.S. Trade Representative’s Office has just sent letters to Congress formally notifying the administration’s intent to enter into trade negotiations with the <a href="https://ustr.gov/sites/default/files/20181017004903138-2.pdf">EU</a>, <a href="https://ustr.gov/sites/default/files/20181017004828790-1.pdf">Japan</a>, and the <a href="https://ustr.gov/sites/default/files/20181017004930805-3.pdf">UK</a>. Cato scholars have called for exactly these negotiations (see <a href="https://www.cato.org/publications/commentary/trump-abe-meeting-portends-potential-trade-deal-japan">here</a>, <a href="https://www.cato.org/blog/us-eu-tariffs-are-too-high-bring-back-ttip">here</a>, and <a href="https://www.cato.org/blog/negotiating-trade-agreements-europe-after-brexit">here</a>, and much more detail <a href="https://www.cato.org/publications/white-paper/ideal-us-uk-free-trade-agreement-free-traders-perspective">here</a>).</p>
<p>There is a lot of work ahead, as these negotiations won’t be easy. They would have been easier if the administration had not imposed “national security” tariffs on imports of steel and aluminum from these very same trading partners. Nevertheless, almost two years into the Trump administration, there is finally a glimmer of hope that there could be some trade liberalization coming.</p>
https://www.cato.org/blog/trump-administration-finally-going-pursue-some-trade-liberalizationTue, 16 Oct 2018 17:13 EDTSimon Lester (Author at Cato Institute)Simon LesterSimon Lester discusses trade on CJAD's Viewpointshttps://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-trade-cjads-viewpoints
https://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-trade-cjads-viewpointsSat, 13 Oct 2018 11:47 EDTSimon Lester (Author at Cato Institute)Simon LesterSimon Lester discusses the WTO on CGTN's The Heathttps://www.cato.org/multimedia/media-highlights-tv/simon-lester-discusses-wto-cgtns-heat
https://www.cato.org/multimedia/media-highlights-tv/simon-lester-discusses-wto-cgtns-heatThu, 11 Oct 2018 12:48 EDTSimon Lester (Author at Cato Institute)Simon LesterTrump’s Attack on the Trade Regime: A Search for Solutions: Panel 3: Current State of U.S. Trade Politicshttps://www.cato.org/multimedia/events/trumps-attack-trade-regime-search-solutions-panel-3-current-state-us-trade
https://www.cato.org/multimedia/events/trumps-attack-trade-regime-search-solutions-panel-3-current-state-us-tradeFri, 05 Oct 2018 11:22 EDTSimon Lester (Author at Cato Institute)James Bacchus, Simon Lester, Inu Manak, Daniel J. IkensonEvaluating the New NAFTAhttps://www.cato.org/blog/grading-new-nafta
<p>There’s a lot in the new NAFTA (technically, the US-Mexico-Canada Agreement, or USMCA), some of it good and some of it bad (the new name is terrible, but that’s not particularly important). In this blog post, we offer our thoughts on some of the key provisions, after which we provide an initial overall assessment of the agreement. We break it down into the good, the interesting, the whatever, the worrying, the bad, and the ugly.</p>
<p><strong>The Good:</strong></p>
<p>– Canadian agriculture: In terms of liberalization in the USMCA, the most important component is the liberalization of Canadian agriculture imports, such as dairy products, eggs, wheat, poultry, and wine. Dairy market access was a key concern for the United States, which has long complained about Canada’s strict supply management and quota system. The Office of the United States Trade Representative (USTR) has noted the opening of Canada’s dairy market as a <a href="https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/october/united-states%E2%80%93mexico%E2%80%93canada-trade-fact">key achievement</a>, because it gives the U.S. additional access to what was agreed in the Trans Pacific Partnership Agreement (TPP). In addition, Canada agreed to give up a <a href="https://ipolitics.ca/2017/04/22/dairy-101-the-canada-u-s-milk-spat-explained/">pricing system</a> for certain types of milk, as well as expanding the U.S. quota for chicken, eggs, and turkey. On wine, the U.S. and Canada agreed in a <a href="https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/US%20CA%20Side%20Letter%20-BC%20Wine%20Letter%20.pdf">side letter</a> that the Canadian province of British Columbia (BC) would adjust its <a href="http://worldtradelaw.typepad.com/ielpblog/2017/02/is-the-us-complaint-on-bc-wine-measures-an-easy-win.html">measures</a> restricting the sale on non-BC wine in its grocery stores. The United States has agreed to give BC until November 2019 to make this adjustment, before advancing a <a href="https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds531_e.htm">complaint</a> it already put forward at the World Trade Organization (WTO) on this issue. This is the most positive part of the new agreement. It gives U.S. producers greater access to the Canadian market, and will be good for consumers in Canada. </p>
<p>– de minimis: The de minimis threshold for products that you buy online and can be imported duty free has been raised. The United States allows consumers to purchase goods up to $800 duty free, and has been pushing for Canada and Mexico to raise their limits as well. It did not persuade them to do so in the TPP. In the USMCA, however, Canada raised its de minimis threshold to CAD $150—a significant increase from the previous CAD $20 limit. In addition, sales tax cannot be collected until the value of the product reaches at least CAD $40. This is good for Canadian consumers making online purchases. Additionally, a <a href="https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/E-brief_Rights%20of%20Passage_June16.pdf">2016 study</a> showed that increasing the duty free limit would be cost-saving for Canada. Mexico also increased its de minimis level, from USD $50 to USD $100, with tax free diminimis on USD $50. USTR has <a href="https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/october/united-states%E2%80%93mexico%E2%80%93canada-trade-fa-1">noted</a> that this will be especially helpful for small businesses. </p>
<p><strong>The Interesting:</strong> </p>
<p>– Investment protection/ISDS: These provisions have been <a href="http://worldtradelaw.typepad.com/ielpblog/2018/10/the-us-mexico-and-maybe-nafta-trade-deal-investment-protectionisds.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ielpblog+%28International+Economic+Law+and+Policy+Blog%29">significantly scaled back</a>. We see this as a positive, and it will be interesting to see how it plays politically with left wing critics of existing investment provisions, and with the business groups who want these provisions included. </p>
<p>– Regulatory issues: One notable addition was an expansive chapter on Good Regulatory Practices, which builds upon the TPP Regulatory Coherence chapter, the Canada-EU Comprehensive and Economic Trade Agreement (CETA), and <a href="https://www.cato.org/blog/regulatory-cooperation-makes-its-debut-nafta-round-2">bilateral initiatives</a> that have been in place between the U.S. and Canada, as well as with Mexico, since 2011. The key items in this chapter are provisions on increasing transparency in the regulatory process, providing a clear rationale for new regulatory actions, as well as encouraging cooperation on minimizing divergence in regulatory outcomes. The general idea is to make regulations less burdensome on trade. It will be interesting to see how this chapter functions in practice, but it appears to be the most comprehensive attempt to address this issue in any trade agreement the United States has signed. </p>
<!--break--><p>– Digital trade: The digital trade provisions are very similar to what was in the TPP. In theory, these provisions can help facilitiate e-commerce, although in practice they are still untested and it’s not clear what impact they will have. </p>
<p><strong>The Whatever: </strong></p>
<p>– Chapter 19: The special review mechanism for anti-dumping/countervailing duties in the famous Chapter 19 has been shifted to Chapter 10, but remains essentially the same. This provision does not have much, if any, commercial impact, but Canada insisted on keeping it nonetheless, and was able to push back on U.S. demands to eliminate it.</p>
<p><strong>The Worrying:</strong></p>
<p>– Currency: This is the first trade agreement with binding provisions related to exchange rates, although not all of this chapter’s provisions are enforceable. There are few concerns with Canada’s and Mexico’s practices in this area, so this provision is really just a marker to lay down for future agreements. The test of this provision will be if another country for which such concerns have been raised (e.g., Japan) agrees to it. While there may be real issues with currency intervention here and there, the problems here have been exaggerated, and have been used by politicians as an excuse to impose tariffs.</p>
<p>– State-state dispute settlement: In order to ensure that the obligations that have been agreed to in a trade agreement are followed, there needs to be an enforcement mechanism. Chapters 11, 19, and 20 of the original NAFTA are often bundled together as “dispute settlement” chapters, but they <a href="https://www.cato.org/blog/knowing-nafta-chapters-11-vs-19-vs-20">all do different things</a>. Chapter 20 is the basic provision that allows one government to complain that another government is not complying with its obligations. The original NAFTA Chapter 20 did not work very well, and unfortunately the new NAFTA looks like it <a href="https://thehill.com/opinion/finance/409498-the-fundamental-flaw-in-the-new-nafta-deal">fails to fix</a> <a href="http://worldtradelaw.typepad.com/ielpblog/2018/10/the-us-mexico-canada-and-nafta-trade-deal-state-state-dispute-settlement.html" target="_blank">its flaws</a>.</p>
<p>– Labor rights: The labor rights provisions <a href="http://worldtradelaw.typepad.com/ielpblog/2018/10/guest-post-the-us-mexico-canada-aka-the-new-nafta-trade-deal-labor.html">go further</a> than past U.S. trade agreements. For some people on the left, this could offer a reason to support the agreement. If you are skeptical about including labor provisions in trade agreements, as we are, this is a negative aspect to the agreement.</p>
<p>– IP provisions:The intellectual property chapter strengthens IP protections, going beyond what was agreed to in the TPP. For example, the parties agreed to 10 years of data exclusivity for biologic drugs (from 5-8), copyright protection to a minimum of the life of the author plus 70 years, and 75 years for copyrights not based on the life of a person. </p>
<p>– Section 232 auto tariffs: As part of the NAFTA renegotiations, Canada and Mexico had hoped to secure an exemption from the potential imposition of additional Section 232 tariffs on autos. However, instead of an outright exemption, there are two separate side letters to the USMCA for <a href="https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/US%20Canada%20232%20Side%20Letter.pdf">Canada</a> and <a href="https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/US%20Mexico%20232%20Side%20Letter.pdf">Mexico</a> that exempt a set quota of passenger vehicle imports and auto parts, as well as all light truck imports, from 232 tariffs that may be imposed in the future. The United States also agreed not to impose 232 tariffs on <a href="https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/US%20Canada%20232%20process%20side%20letter.pdf">Canada</a> or <a href="https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/US%20Mexico%20232%20process%20side%20letter.pdf">Mexico</a> for at least 60 days after the measure is imposed, allowing the U.S. to negotiate separate agreements within that timeframe. The exemption levels are high enough that all auto exports from Canada and Mexico could be exempt, which is good news. However, the principle is an awful one – applying these tariffs and then establishing export quotas is bad policy and undermines the rule of law.</p>
<p><strong>The Bad:</strong></p>
<p>– FTAs with China: The agreement <a href="http://worldtradelaw.typepad.com/ielpblog/2018/10/the-us-mexico-canada-aka-the-new-nafta-trade-deal-limit-ftas-with-nmes.html">discourages the NAFTA parties</a> from negotiating trade deals with non-market economies, which means China and a few others. Limitations on negotiating other FTAs are a bad idea generally; it remains to be seen what actual impact it will have here (Canada and China have been talking about negotiating an FTA).</p>
<p><strong>The Ugly:</strong></p>
<p>– North American auto trade: The new rules of origin are extremely restrictive, raising costs for auto production in North America. This could lead to more production being done outside of North America, or higher costs for consumers. This is the most negative part of the new agreement.</p>
<p>– Sunset clause: The sunset clause is weakened from the original U.S. proposal – under which the agreement would expire automatically after five years unless all three countries agree to extend it – but it is still problematic. The revised provision may end up being harmless, but <a href="http://worldtradelaw.typepad.com/ielpblog/2018/10/the-us-mexico-canada-nafta-trade-deal-the-sunset-clause.html">there are risks</a>, and it would be better to take it out. </p>
<p>**********************</p>
<p>Overall, the package agreed to here looks like a mixed bag. There are some good things, some bad things, and many unknowns. The biggest loss might be unseen, however. If only the Trump administration had just implemented the TPP, or had begun negotiating with countries with whom the U.S. did not already have a trade agreement, it could have achieved a great deal more trade liberalization. On the other hand, people may feel that the biggest gain was preserving most of the zero tariffs under the NAFTA. But somehow, just keeping what you already had does not seem like that big of a win to us.</p>
https://www.cato.org/blog/grading-new-naftaWed, 03 Oct 2018 08:59 EDTSimon Lester (Author at Cato Institute)Simon Lester, Inu ManakThe Fundamental Flaw in the New NAFTA Dealhttps://www.cato.org/publications/commentary/fundamental-flaw-new-nafta-deal
<p>Unlike much of international law, trade agreements usually have
a good enforcement mechanism. When one government believes another
is not complying, it can file a complaint with an ad hoc panel and
have its claims adjudicated.</p>
<p>Unfortunately, the original North American Free Trade
Agreement’s (NAFTA’s) enforcement rules did not function
properly.</p>
<p>The NAFTA renegotiation was a chance to the fix these problems,
but the negotiators passed up this chance, leaving the new
U.S.-Mexico-Canada Agreement (USMCA) somewhat toothless and perhaps
fundamentally flawed as a result.</p>
<p>In the beginning, the NAFTA dispute mechanism worked well
enough. From 1995 through the middle of 2000, there were 18
complaints filed, with panels ruling on three of those complaints.
But then in late 2000, in a claim filed by Mexico against U.S.
restrictions on sugar, <a href=
"https://www.cambridge.org/core/journals/world-trade-review/article/access-to-trade-justice-fixing-naftas-flawed-statetostate-dispute-settlement-process/833E151474CD2198068A6EB094759545"
target="_blank" rel="noopener noreferrer" data-saferedirecturl=
"https://www.google.com/url?hl=en&q=https://www.cambridge.org/core/journals/world-trade-review/article/access-to-trade-justice-fixing-naftas-flawed-statetostate-dispute-settlement-process/833E151474CD2198068A6EB094759545&source=gmail&ust=1538583584760000&usg=AFQjCNHgTBQHO0NfEmzpjY6khpn3BHh1aA">
the United States blocked the appointment of the panel</a>.</p>
<blockquote class="pullquote right">
<p class="pq-quote"><span class="pq-body">The Trump administration
seems to want to keep the enforcement mechanism weak.</span></p>
</blockquote>
<p>Since that time, NAFTA complaints have essentially dried up.
From 2001 until today, there have only been four complaints, none
of which have gone to a panel.</p>
<p>Proving cause and effect is difficult, and it is possible that
the decline in NAFTA complaints is unrelated to the blocking of the
panel appointment process. Perhaps the NAFTA governments simply did
not have many complaints about each other’s behavior during this
later period.</p>
<p>However, the correlation here is striking, and if the
enforcement process is, in fact, not working, it is clear that
NAFTA’s value is severely diminished.</p>
<p>The panel process is important because disagreements over trade
restrictions are often complex and benefit greatly from neutral
adjudication. Most disputes are not about simple matters such as
whether a government is charging a 10-percent or a 20-percent
tariff.</p>
<p>Rather, they tend to involve a detailed examination of domestic
laws and regulations and the application of complex trade rules and
exceptions to determine if the domestic measures are in compliance
with trade agreement obligations.</p>
<p>NAFTA was one of the first bilateral or regional trade
agreements to go beyond the multilateral rules of the World Trade
Organization. It was an experiment in many ways, and it was not
clear how many of its rules would work in practice.</p>
<p>The dispute settlement rules were no exception. The drafters of
those rules probably thought they had ensured that panels would be
appointed when there was a need. But after the sugar dispute was
blocked, everyone learned otherwise.</p>
<p>The NAFTA renegotiation was a chance to correct this flaw in the
original NAFTA text. Over the years, many new trade agreements have
refined these trade dispute procedures in an attempt to address
this problem.</p>
<p>For example, the Trans-Pacific Partnership (TPP) tries to offer
a better guarantee that a government will not be able to block
appointment of the panel. As part of the NAFTA renegotiation, the
drafters of the new NAFTA could have at least borrowed from the TPP
provisions.</p>
<p>Even better would have been to push further than the TPP, as the
TPP still leaves possible avenues for delaying panel selection.</p>
<p>Unfortunately, the USMCA makes no progress at all on these
issues. While it modernizes the rules in many ways, on dispute
mechanisms it simply continues with the original flawed NAFTA.</p>
<p>U.S. Trade Representative Robert Lighthizer has <a href=
"http://worldtradelaw.typepad.com/ielpblog/2017/09/nafta-chapter-20-proposals.html"
target="_blank" rel="noopener noreferrer" data-saferedirecturl=
"https://www.google.com/url?hl=en&q=http://worldtradelaw.typepad.com/ielpblog/2017/09/nafta-chapter-20-proposals.html&source=gmail&ust=1538583584760000&usg=AFQjCNFEzMWdpM92DlqxjI7v4jPPUMpeLA">
expressed a desire</a> to make trade agreements less enforceable
than they currently are, so it is not surprising that the United
States would ignore this issue.</p>
<p>And while Mexico and Canada have an interest in making sure the
NAFTA can actually be enforced in the face of U.S. protectionism,
it is possible that they felt pressure to get a deal done and
eliminate the risk that President Trump would simply withdraw from
NAFTA.</p>
<p>As we move beyond NAFTA and consider trade agreements with other
countries, there is the broader question for Congress as to whether
it wants trade agreements to be enforceable. The Trump
administration seems to want to keep the enforcement mechanism
weak.</p>
<p>But if Congress wants trading partners to honor the commitments
they make, enforceability is crucial. The new NAFTA is flawed in
this regard, and while Congress might just be happy that President
Trump has not wrecked NAFTA, in the future it should make sure
trade agreements have a proper enforcement mechanism.</p>
https://www.cato.org/publications/commentary/fundamental-flaw-new-nafta-dealTue, 02 Oct 2018 15:21 EDTSimon Lester (Author at Cato Institute)Simon Lester, Inu ManakThe New NAFTAhttps://www.cato.org/blog/new-nafta
<p>Late last night, Canada, Mexico, and the United States agreed to a revision of the North American Free Trade Agreement (NAFTA). They are calling it the United States-Mexico-Canada Agreement (USMCA), which is a pointless exercise in rebranding, but not worth agonizing about. We suspect that many people will just keep calling it NAFTA.</p>
<p>If you are curious, the full text is <a href="https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico">here</a> but it is a slog. We are slowly making our way through it, and ultimately will provide an assessment of whether this new deal is net liberalizing. If you are interested in some more technical details, check out the blog posts at the International Economic Law and Policy <a href="http://worldtradelaw.typepad.com/ielpblog/">blog</a>.</p>
<p>If you want to get a general sense of what’s in it, here’s a basic overview. Overall, the new agreement is kind of a mixed bag. There are some improvements, mainly the liberalization of a few Canadian agricultural sectors. However, the agreement is made worse in some ways by making it harder for autos to qualify for zero tariffs. The new agreement has also been modernized by including some recent Trans Pacific Partnership (TPP) innovations, which is good. But there are systemic provisions that are not very good. All in all, it is not a terrible deal, although U.S. government resources probably would have been better spent on liberalizing trade with countries with whom we did not already have a trade agreement. </p>
https://www.cato.org/blog/new-naftaMon, 01 Oct 2018 10:10 EDTSimon Lester (Author at Cato Institute)Simon Lester, Inu ManakSimon Lester discusses the KORUS trade agreement on KDMT's Business for Breakfast with Jimmy Sengenbergerhttps://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-korus-trade-agreement-kdmts-business
https://www.cato.org/multimedia/media-highlights-radio/simon-lester-discusses-korus-trade-agreement-kdmts-businessTue, 25 Sep 2018 12:18 EDTSimon Lester (Author at Cato Institute)Simon LesterDigging in for a Long Fighthttps://www.cato.org/publications/commentary/digging-long-fight
<p>US President Donald Trump frequently proclaims his desire to
“drain the swamp.” In US-China trade relations, however, he is
steadily leading the United States into a quagmire from which it
may be difficult to escape. Skepticism and hostility towards China
among US politicians and commentators existed long before Trump,
but the intensification of the rhetoric, and aggressive actions
taken in recent months, will be difficult to undo or pull back
from, at least for this administration.</p>
<p>Like all countries, China is guilty of a number of trade sins.
There are sectors in which it is highly protectionist, and it has
only recently begun to follow rich country norms on intellectual
property. China is not the only offender, of course, but given its
economic size and its authoritarian politics, it is not surprising
that China is the target of the most intense criticism.</p>
<p>What is surprising is the strategy taken by the Trump
administration to address these issues. While the Barack Obama
administration tried to work within multilateral rules, the Trump
administration has decided to go it alone. It is imposing tariffs
on China that clearly flout World Trade Organization (WTO)
obligations, and which do not appear to be achieving the objective
of prompting reform in China.</p>
<p>Instead, we are in the midst of a back-and-forth game of tariff
escalation. The US imposes tariffs on US$34 billion of imports;
China matches it. The US adds tariffs on another US$16 billion of
imports; China matches that. The US is now threatening tariffs on
$200 billion of imports; China doesn’t import enough from the US to
match that, but it will impose tariffs on all the imports it can.
If this keeps going, both sides will be imposing tariffs on all
imports from each other, and perhaps taking other retaliatory
actions as well.</p>
<p>The administration’s defense of its policies is that other
methods of dealing with China have been tried and did not work. The
administration accuses China of cheating, and says the WTO cannot
handle China’s unique brand of state intervention. There have even
been suggestions that China’s entry into the WTO on the terms
agreed in 1999 was a mistake.</p>
<p>The reality is that WTO litigation against China’s trade
practices has worked quite well, where it has been used. China does
as well as other countries at compliance when challenged in a WTO
complaint. The problem is that WTO dispute settlement needs to be
used more. But the Trump administration is not listening to this
criticism (it has filed only one new WTO complaint). It is relying
mostly on tariffs instead.</p>
<p>And despite the concerns of economists and affected companies,
the administration shows no sign of letting up. As long as the US
economy is doing well, the administration is confident that it will
win this battle. The logic is simple: US imports from China are
much greater than Chinese imports from the US. Therefore, in a
contest of tariffs on imports, the US will come out ahead.</p>
<p>This view is mistaken for a number of reasons. First, while so
far China has focused on equivalent tariff retaliation, it can
retaliate with more than just tariffs. China could penalize US
companies operating in China in a variety of ways.</p>
<p>Second, the US tariffs hurt Americans just as much as they hurt
Chinese producers. Tariffs are taxes that are ultimately paid by
importers and consumers, and thus the administration’s approach
harms Americans (and then the Chinese retaliation harms them
more).</p>
<p>And third, as much as the Trump administration would like China
to back down, politically speaking, it would be very difficult for
China to do so. Public demands for unilateral concessions from
China, which would make China look weak if it agreed to them, are
difficult to accept.</p>
<p>So how will this end? Perhaps China will cave, although most
China experts think this is unlikely. And even if China wanted to
cave, it is not clear exactly what would satisfy the Trump
administration. While the administration shows no signs of backing
down, there are two possible events that could lead to some
reconsideration of its approach: a slowing of the economy and the
results of the US midterm elections.</p>
<p>Part of the confidence the Trump administration has right now is
derived from the strong US economy. Despite all of the tariff
actions in recent months, the US economy is still doing well. But
these tariffs are still relatively new and have only affected a
small amount of trade so far. As the Trump administration continues
to push forward with tariffs, the impact should become more
noticeable.</p>
<p>As for the midterm elections, if the Democrats win one or more
houses of Congress, the domestic political landscape could change
considerably. The Trump administration might spend most of its time
defending itself from congressional investigations, and its
flexibility to undertake trade policy could be diminished.</p>
<p>In the meantime, we watch the escalation nervously and warily.
The key players in the Trump administration are not interested in
other perspectives, which means that little can be done to
encourage a change in approach. We all have to dig in for a long
trade battle, and hope there are not too many casualties.</p>
https://www.cato.org/publications/commentary/digging-long-fightTue, 25 Sep 2018 09:38 EDTSimon Lester (Author at Cato Institute)Simon Lester